Tax is changing in Wales

From April 2019, Wales will start to exercise its authority to set its own income tax rates. The Welsh rate of income tax (WRIT) is not yet known, but payroll professionals need to be aware of the challenges ahead.

Income Tax will continue to be collected by HMRC, but the Welsh Government will be able to vary the rate paid by Welsh resident taxpayers. This means that people living in Wales could pay a different rate of Income Tax compared to people in other parts of the UK

How it will work?

As we saw when the Scottish rate of income tax (SRIT) was first delivered, the UK tax rates will reduce each of the three rates of income tax i.e. basic, higher and additional rates that are to be paid by Welsh taxpayers by 10p. The National Assembly for Wales will then decide what amounts to set in replacement of these reductions.

The combination of reduced UK rates plus the Welsh rates will determine the overall rate of income tax to be paid by Welsh taxpayers. For example, if each of the Welsh rates that are set and agreed by the National Assembly are 10p, this would result in the rates of income tax paid by Welsh taxpayers remaining the same as those paid by taxpayers in England and Northern Ireland.

Details of the proposed rates will be announced in the Welsh Government Budget later this year. Revenue from the Welsh rates of Income Tax will go to the Welsh Government.

What will stay the same?

Income tax will still be collected by HMRC for Welsh tax payers.

The personal allowance will also continue to be the same as it is in England, Northern Ireland and Scotlan, as will the point at which people start to pay the higher and additional rates of income tax.

Payroll changes

Software developers have begun to receive updates and regular communications from HMRC’s software developer support team (SDST), who at this time of year are also working to deliver a programme of updates that will see the publication of technical specifications for 2019-20.

This will hopefully ensure that from April 2019 employers, payroll bureaux, bookkeepers and accountants will be able to operate their payroll processes, confident in the knowledge that their software is delivering solutions for the latest policy challenges.

Employees affected by the change and liable to pay the Welsh rate of income tax will be identified by the addition of a C (Cymru) prefix that will be applied to their tax code.

Income tax regimes impacted by this change will include: PAYE (basic, higher and additional rates); income from pensions and other non-savings sources; and self assessment

What do I need to do?

The most important thing for you to do is ensure that HMRC have the correct address for you. This is important for a number of reasons but not least to identify whether the taxpayer is a Welsh resident.

Details can still be changed via the telephone helpline service. However, in line with MTD aspirations, HMRC continues to promote the use of the personal tax account as the preferred method to update details.

If you have any queries about the proposed changes then just let us know!